Brazil Billionaire Batista Said to Face Collateral Calls

March 19 (Bloomberg) -- Eike Batista, the Brazilian
billionaire whose oil-company shares fell to a record low last
week, is close to selling a stake in MPX Energia SA as he faces
demands from creditors to boost collateral, people with direct
knowledge of the matter said.

Among Batista’s biggest creditors is Sao Paulo-based Itau
Unibanco Holding SA, with about 5.5 billion reais ($2.8 billion)
in loans outstanding, said two of the people, who asked not to
be identified because the matter is private. Batista borrowed
about 4.8 billion reais from Banco Bradesco SA and 1.6 billion
reais from Grupo BTG Pactual, not counting a credit line of $1
billion BTG provided earlier this month, the people said.

Batista, 56, used shares of his publicly traded companies
as collateral for loans that helped build his empire of
commodities and energy businesses, held as units of his EBX
Group Co., the people said. Shares of his oil and gas company,
OGX Petroleo e Gas Participacoes SA, plunged about 85 percent in
the past year through yesterday, and Batista is trying to reduce
collateral requirements by selling assets to pay debt, the
people said.

“A big part of investors’ mistrust now comes from the fact
that Eike may be forced to cover margin calls on his debts,”
Leonardo Brito, an equity analyst at hedge fund Teorica
Investimentos, said in a telephone interview from Rio de
Janeiro. “Doubts about the group continue.”

Units’ Losses

Net debt at Batista’s six publicly traded units more than
tripled last year to a combined 15.8 billion reais, according to
data compiled by Bloomberg based on the latest available
figures. The companies posted a combined net loss of 1.68
billion reais in the first nine months of last year amid missed
project targets and rising costs.

“Infrastructure projects such as the ones being undertaken
by the group are capital intensive, necessarily demanding long-term financing,” EBX said yesterday in an e-mailed statement.
“EBX Group’s companies have the necessary funding established
for the coming years and are always looking to improve the
profile of its indebtedness.”

Batista’s oil business cut production targets in June,
fueling share-price declines at his publicly traded companies.
As the stocks fell, so did the value of outstanding collateral.
Banks asked for more collateral to keep their own exposure to
Batista’s holdings under their risk-tolerance levels, the people
said, adding that some of the banks are also required to sell
the shares they own, contributing to stock-price declines.

Liquidity Line

Batista, whose personal wealth declined about $25 billion
in the past year as the share prices tumbled, can use the short-term liquidity line he received from BTG for any of his
companies and for any purpose, including paying debt as a way to
reduce collateral needs, one of the people said.

Itau, Bradesco and BTG declined to comment on collateral
calls, according to bank officials who asked not to be
identified in keeping with company policies.

EON SE, Germany’s biggest utility, is in discussions to
boost its stake in MPX, Batista’s power-generating unit, to
about 39 percent from 12 percent and gain effective control, a
person with direct knowledge of the matter said. EON would buy
MPX shares for about 12 reais apiece, and Batista would receive
about 1.87 billion reais, the person said.

Development Bank

Then, through a capital increase, Brazil’s development
bank, known as BNDES, would increase its holding to 13 percent
from 10 percent and BTG Pactual would buy about 200 million
reais in shares, said the person, who requested anonymity
because the talks are private. The capital increase would dilute
EON’s stake below 35 percent, allowing the German company to
avoid consolidating MPX’s 6.07 billion reais of debt on its
balance sheet.

Batista also would sell MPX shares to the public in the
divestiture, which may raise more than $2 billion, the person
said. An EON official declined to comment on the talks.

EBX didn’t give specific amounts when it announced a
strategic cooperation agreement on March 6 with Sao Paulo-based
BTG that includes financial advice, lines of credit and long-term capital investments. Batista and BTG’s billionaire chief
executive officer, Andre Esteves, 44, are leading a strategic
and financial management committee, EBX said. The agreement
doesn’t imply BTG will be the only provider of financial
services to EBX, it said. Fees will depend on the performance of
EBX companies.

Investors should have confidence in the capacity of Esteves
to help Batista turn around the situation, said Luiz Cezar
Fernandes, a director at Gradual Investimentos who founded
Pactual in 1983.

Expect Success

“Short sellers may get surprised because in the middle
term this will start to have an effect,” Fernandes said of
Batista’s negotiations to sell assets. “This is not an
overnight process. The market as usual wants answers overnight,
but I think in the middle term it will be a success.”

Batista sold part of the holding company EBX last year to
Abu Dhabi’s Mubadala Development Co. and General Electric Co.,
slowing an expansion into mining and energy in Brazil, Colombia
and Chile to focus on raising cash to boost output at existing
projects.

Batista also aimed to sell all of his gold business, AUX,
after disclosing plans last year to divest a 49 percent stake,
two people familiar with the matter said last month. Vancouver-based Goldcorp Inc., the world’s second-biggest miner of the
precious metal by market value, entered the talks for AUX after
an agreement to negotiate exclusively with Qatar’s government
expired in October, the people said. The pace of negotiations
for AUX has slowed and a deal may not happen, one of the people
said.

OSX Brasil

Batista also sought to sell shipbuilder OSX Brasil SA to
Sete Brasil Participacoes SA in exchange for a stake in the oil-rig contractor, according to two people with direct knowledge of
the matter. He eventually gave up on the idea, Folha de S. Paulo
reported in October, citing an interview with Batista.

OGX share’s price fell 44 percent this year, the biggest
drop among 121 companies in the FTSE All World Oil & Gas
Producers Index, and investors are betting it will fall more as
short-seller positions increase. Shares that have been sold
short and not yet repurchased rose to 19.7 percent of the
stock’s free float yesterday from 12.9 percent a month ago,
close to the Brazilian exchange’s 20 percent limit, data
compiled by Bloomberg show.

OGX declined 1.2 percent to 2.44 reais at 12:22 in Sao
Paulo.

“He really has to do something to prove he isn’t having
any cash problem,” Brito at Teorica said. “Maybe selling an
asset, like MPX, or doing a farm-out at OGX; anything that
proves that he has assets that he can sell at a good price.”